Solutions to the impact of Brexit on Northern Ireland trade
The Northern Ireland Protocol (the Protocol) has been back in the headlines recently as politicians in the UK, Ireland, and EU try to ease the difficulties faced by many businesses as they move their goods between Great Britain, Northern Ireland and Ireland.
The Protocol was designed to preserve an open land border within Ireland by placing a customs border between Great Britain and Northern Ireland and by maintaining certain EU goods standards and customs procedures within Northern Ireland.
This has resulted in significant disruption of trade in goods between GB and NI, leading to political tensions between the UK and EU, and within Northern Ireland.
This week UK and EU leaders are still trying to negotiate a settlement. DLA Piper explores what is at stake and the possible outcomes.
The UK has sought to negotiate fundamental changes to the Protocol, despite the argument levelled against it that the disruption that the Protocol has caused was largely foreseeable before the UK agreed to sign it.
The UK outlined its proposed approach to amending the Protocol in a Command Paper (found here) published on 21 July 2021. The reasoning behind its proposals was to ensure businesses and consumers in NI could continue to access goods from the rest of the UK. The key proposals included:
- Abolishing blanket customs paperwork for traders selling from GB into NI and replacing it with a “trust and verify” system that requires traders to declare the destination of their goods.
- A dual regulatory system whereby manufactured goods or sanitary or phytosanitary (SPS) products can circulate in NI if they meet UK or EU regulations.
- Stronger market surveillance, product labelling rules, penalties for non-compliance, and enforcement arrangements to counter the risk of traders seeking to place non-compliant goods onto the EU market.
What this means for business
A lighter touch customs regime:
- Under the UK proposals, traders would register under a ‘light-touch’ scheme based on supply chain transparency and potential shipment checks “on a risk-based and intelligence-led basis”. This would remove customs burdens for UK traders bringing goods in from the rest of the world and for businesses moving consignments via post, that are destined for NI. However, goods bound for Ireland or other EU Member States would still be subject to full customs formalities.
A lighter touch regulatory approval process:
- The dual regulatory system would allow UK traders to avoid regulatory checks on goods destined for NI. However, goods destined for Ireland or other EU Member States would be subject to full customs processes and would be required to meet EU rules in full.
Subsequently, on 12 October 2021 the UK submitted a new legal text to the European Commission in Brussels, which has not been made public. The legal text is reported to reflect the proposals outlined in the Command Paper. In addition, and controversially, however, the UK proposed relying on international arbitration instead of the Court of Justice of the EU (CJEU) as the Protocol’s enforcement mechanism.
On 13 October the EU put forward a package of proposals (see here) to provide further flexibilities in the NI Protocol in the area of food, plant and animal health, customs, medicines. It recommends adopting a different model for the implementation of the Protocol, in which the flow of goods between GB and NI - in respect of goods destined to stay in NI - is eased to a significant extent. This easing is enabled by a series of safeguards and increased market surveillance to ensure the goods do not move into the EU's Single Market. In announcing the package, European Commission Vice-President, Maros Šefčovič, said:
“I have listened to and engaged with Northern Irish stakeholders. Today’s proposals are our genuine response to their concerns. We have put a lot of hard work into them to make a tangible change on the ground, in response to the concerns raised by the people and businesses of Northern Ireland. We are looking forward to engaging earnestly and intensively with the UK government, in the interest of all communities in Northern Ireland.”
In the EU’s eyes, however, the UK Government has opted to up the stakes, and reduce the chances of a negotiated settlement, by throwing the oversight of the CJEU into this debate. The EU is very unlikely to yield on CJEU oversight of the Protocol, as the UK government knows. This has led to concerns in Brussels that the UK Government is happy to leave the Protocol unresolved for the time being, most likely for internal political reasons.
As a priority, the Irish Government has sought to limit the return of physical border infrastructure on the island of Ireland as a consequence of Brexit (e.g., customs posts, border facilities, etc). Key sectors of the Irish economy operate on an all-island basis, including agriculture, food and energy, while others, such as healthcare, involve complex cross-border arrangements between Ireland and NI, which if restricted would suffer significantly. In addition, preserving free circulation of trade and travel on an all-island basis has been driven by a genuine fear that isolating cross-border movement would jeopardise the Peace Process. The Irish Government regards these objectives as central to the creation of the Protocol.
At the same time, however, the Irish Government has recognised that the Protocol imposes an administrative burden on GB – NI trade, and has actively sought “constructive” solutions to the “underlying difficulties” with the Protocol. That said, the Irish Government has expressed concerns in response to calls from within the UK seeking to unilaterally “abolish” or “re-write” the Protocol outside an agreed framework. Since the Withdrawal Agreement and Protocol were agreed following lengthy and protracted negotiation, the Irish Government regard it as fundamental that the EU and UK Government work together in good faith within agreed parameters under their international obligations.
The Irish Government has welcomed the EU’s October package as “creative, credible and durable” solutions to lessen the administrative burden imposed by the Protocol. It further noted that “the Commission’s package respects the fine balance at the heart of the Protocol: protecting the Good Friday agreement, avoiding a hard border on the island of Ireland while at the same time protecting EU consumers and the integrity of the EU’s single market”.
Ireland regards the UK as a close and trusted trade partner of the EU and welcomes genuine engagement on these issues. As a committed EU Member State, Ireland’s key objective for the coming dialogue on the EU proposals must focus on ensuring a robust and credible monitoring and enforcement mechanism to avoid the risk of goods unlawfully entering the EU market via NI, such as GB goods destined only for sale in NI.
In addition, recent polling in October 2021 among the population in NI suggests most (52%) favour the Protocol – and a large majority (69%) agree that particular arrangements are necessary to manage the effects of Brexit. It will be interesting to see how this dynamic affects the future discussions.
What if there is no agreement?
If the UK and EU do not reach agreement by the end of 2021, the European Commission and Member States, particularly France, will raise the political temperature and take a tougher line against the U.K. Such measures could include the imposition of tariffs on imports into the EU of UK goods.Negotiations between the UK and EU to resolve the deadlock are ongoing.